What changed
Previously, Regulation 6(2) of FEMA 120/2004 prohibited any overseas direct investment by Indian parties in Pakistan. Now, such investments will be considered under the approval route specified in Regulation 9 of the same notification, meaning each proposal requires prior RBI clearance.
What it means for you
Indian banks and their customers can now explore investment opportunities in Pakistan, but must route all proposals through RBI's approval process. This adds a layer of regulatory scrutiny and potential delays. Banks need to advise clients that no investment can proceed without explicit RBI nod.
What you must do
- Inform all constituents and customers about this policy change immediately.
- Advise clients that any overseas direct investment in Pakistan requires prior RBI approval under Regulation 9.
- Do not process any such investment without receiving the necessary RBI approval documentation.
- Ensure compliance with all other applicable laws and permissions beyond FEMA.
Who it affects
Indian companies seeking to invest in Pakistan, AD Category-I banks handling outward remittances for overseas investment, RBI's Foreign Exchange Department processing approval applications
Can Indian companies now freely invest in Pakistan?
No. The earlier blanket ban has been lifted, but all investments must go through the RBI approval route. Each proposal will be evaluated on a case-by-case basis.
What is the approval route under Regulation 9?
It means Indian parties must submit their investment proposal to RBI for prior approval. The central bank will assess the proposal before granting permission.
Does this circular change any other FEMA regulations?
The circular states that necessary amendments to the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 are being issued separately. For now, only the investment in Pakistan provision has changed.